Automakers believe they have the right
formula for profitable globalization. A flexible product platform, outsourced modular
assemblies and world-class processes. Their vision is to sell the same car around the
globe (localized to meet regional requirements) at lowest cost, highest quality and
fastest time-to-market. Their strategy is to build-to-order and to get a car into the
hands of a buyer within a week, from the 1½ months it takes today.
These concepts may appear to be limited to
the automotive industry, but they are indicative of changes occurring across many
industries in an effort to reduce costs, speed time-to-market and improve profit margins.
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Instead of assembling hundreds of parts to
make up a section of a car, such as an instrument panel or front-end suspension,
automakers want to receive these as single modules – fully adjusted, fully tested, and
delivered Just-in-Time to their line. As car manufacturers design new facilities for
modular vehicles, they are demanding that modular suppliers – a new breed of system
integrator – take up shop next door or within the plant. Those suppliers fortunate to get
the business must adhere to strict rules of engagement: year-on-year cost reductions,
on-time deliveries in sequential order, modular innovation, highest quality, technical
flexibility, and worldwide competitive performance.
These changes are shaking up the component
supplier base. It is known that the automakers will reduce the number of Tier 1 contracts
– from the thousands used in traditional assembly – down to just a handful that can
design, integrate and deliver complete systems. As a result, Tier 1 suppliers have two
options – acquire the expertise and resources needed to build all the components of a
module, or become a Tier 2 player. The rush is on. In just the past two years, through
acquisitions and independence from the OEMs, mega-suppliers worth more than $10B have
formed.
For these new system integrators, there is
tremendous upside. Through acquisitions, they have cut costs by more than $100M a year,
they have acquired diversified portfolios, foreign presence and new OEM customers, and
they have become suppliers of systems rather than single parts. More importantly, they are
becoming significant forces in their own right. They are taking on much or all of the
design and integration for subsystems, which has the potential to shift some of the power
out of the hands of automakers. They are also taking on more of the responsibility for
sourcing and supply chain management.
Yet, there is still tremendous pressure
from automakers. OEMs govern compliance requirements, including component sources. They
also govern where a system integrator operates. If an automaker wants to expand
production, the suppliers must follow suit and make the investments necessary to meet
capacity requirements. If the automaker wants to build a new facility and have its core
suppliers on the site, the suppliers must abide. In fact, this is the latest trend.
Volkswagen, DaimlerChrysler, Ford and GM have recently built new plants for modular
assembly that required on-site suppliers. By having modules assembled near by, they can be
received within minutes of a JIT signal and delivered in sequential order to specific
vehicles on the line.
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By GlobalDataA total overhaul of the industry won’t
happen over night, it will take the next decade to put these changes into common practice.
In the meantime, suppliers will be beefing up to make the grade. Many have already turned
to ERP vendors (including Baan, CMI, CMS, GLOVIA, JBA, JD Edwards, Oracle, QAD, SAP and
SSA) to help them put standardized and improved practices into place. Top of the list has
been multinational capabilities and integrated processes. Second are functions to support
lean manufacturing practices, tightly monitored sourcing arrangements, quality assurance,
cost controls, project management, engineering change control and multi-site operations.
The growing requirement for sequential
deliveries and supply network management is creating a need for additional technology
applications. For sequencing, there are two interesting approaches. i2 and SSA are good
examples of these. i2’s RHYTHM Assembly Sequencing generates optimized assembly sequences
tightly integrated to in-house feeder operations and outside suppliers. SSA’s SEQUENCE
automatically receives broadcast messages from vehicle manufacturers and simplifies the
information into a list of sequenced component delivery requirements and monitors the
status of each component throughout the whole process. Other areas of focus are
collaborative design and planning efforts, strategic sourcing, product data management,
concurrent engineering, target costing practices, and supply chain execution.
In addition, many companies are
participating in the Automotive Network eXchange (ANX), designed and managed by the
independent Automotive Industry Action Group (AIAG). ANX connects suppliers and OEMs
through a private Internet service, and gives them the ability to exchange information –
from orders and invoices to CAD files and e-mails. The power is in reaching the Tier 2s,
3s and 4s that never had the ability to get EDI up and running. By getting everyone in the
supply chain on-line, AIAG believes significant savings and time can be realized.
What is going on in the automotive industry
may not directly apply to others, yet consolidation, globalization and modularization are
prevalent in many sectors as companies strive to increase product and service market
differentiation and growth.
By Alice Greene, Industry Directions
Inc., Reprinted with permission from May 1999 Manufacturing Systems Magazine All rights
reserved.
About Industry
Directions
Industry Directions is a strategic analyst
and consulting firm, focusing on the current and future requirements of vertical
industries. Its manufacturing, value chain and IT solution services enable companies to
develop distinctive competitive positioning, gain greater market share and capture
emerging markets.
Industry Directions has a team of senior
industry and IT solution analysts that use proven methodologies to research market
dynamics and apply their industry and application solutions intelligence to
client-specific projects and strategic business requirements. For more information, visit www.industrydirections.com
